REG-Aberforth Geared Value & Income Trust Plc: Half-year Report
29/01/2025 07:15
Aberforth Geared Value & Income Trust plc
Interim Results for the period ended 31 December 2024
The following is an extract from the Company's first Half Yearly Report and
Financial Statements for the period to 31 December 2024. The Half Yearly
Report is expected to be posted to shareholders by 7 February 2025. Members
of the public may obtain copies from Aberforth Partners LLP, 14 Melville
Street, Edinburgh EH3 7NS or from its website:
www.aberforth.co.uk/trusts-and-funds/aberforth-geared-value-income-trust-plc.
A copy will also shortly be available for inspection at the National Storage
Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
FINANCIAL HIGHLIGHTS (SUMMARY)
Total returns in the period from Inception (28 June 2024) to 31 December 2024
Total Assets -2.3%
Ordinary Share NAV -4.2%
Ordinary Share Price -17.0%
ZDP Share NAV +2.6%
ZDP Share Price +6.5%
Refer to Note 2, Alternative Performance Measures, and the Glossary
Total returns in the period from Launch (1 July 2024) to 31 December 2024
Total Assets -0.6%
Ordinary Share NAV -2.2%
Ordinary Share Price -17.0%
ZDP Share NAV +2.6%
ZDP Share Price +6.5%
Refer to Note 2, Alternative Performance Measures, and the Glossary
Dividend Declared
First interim dividend for the period ending 30 June 2025 of 1.50p.
The first interim dividend has an ex-dividend date of 6 February 2025, record
date of 7 February 2025 and pay date of 10 March 2025.
The Company
Aberforth Geared Value & Income Trust plc (AGVIT) is a closed-ended investment
company incorporated on 29 March 2024. It has a fixed life of seven years and
its shares are traded on the London Stock Exchange's main market. The Company
acted as a rollover option for shareholders in Aberforth Split Level Income
Trust plc (ASLIT) in connection with the winding up of ASLIT on 1 July 2024.
Further information is set out in Note 9 of the Financial Statements, the
Company’s Prospectus issued on 28 May 2024, and is also available on the
Aberforth website www.aberforth.co.uk. This is the Company’s first Half
Yearly Report, so no comparative results are shown.
Investment Objective
The Company's investment objective is to provide Ordinary Shareholders with
high total returns, incorporating an attractive level of income, and to
provide ZDP Shareholders with a pre-determined Final Capital Entitlement of
160.58 pence on the Planned Winding Up Date of 30 June 2031.
CHAIRMAN’S STATEMENT
Introduction
This is my first Chairman’s statement for Aberforth Geared Value & Income
Trust (“AGVIT”). It covers the period from inception on 28 June 2024 to
31 December 2024.
AGVIT’s launch took place amongst headlines of wars, recessions and
elections. Less well appreciated aspects of the backdrop were the attractive
valuations of small UK quoted companies, their resilience when confronted by
challenge and their ability to grow dividends over time. These
characteristics were, and are, the basis of AGVIT’s investment
opportunity. There is additional encouragement in the elevated rate of M&A
activity, which shows that other rational investors can spot the opportunity
in the valuations of AGVIT’s investment universe.
I am pleased to report that the Company’s launch was successful with gross
proceeds, before costs, of c.£147.6 million. The Company also started its
life near fully invested since c.£132.7 million was subscribed by
shareholders in Aberforth Split Level Income Trust (“ASLIT”) who elected
to roll over their investments into AGVIT. The balance of c.£14.9 million
came from the Company’s placing and offer for subscription. On behalf of
the Board, I would like to thank all Shareholders for their support.
Before moving on to address performance and developments since launch, the
following bullet points are a reminder of some of the salient features of your
Company.
• The Company is an investment trust, with two classes of
shares in issue: Ordinary Shares and Zero Dividend Preference (“ZDP”)
Shares. Capital returns to the Ordinary Shareholders are geared by the final
capital entitlement due to the ZDP Shareholders. In periods of rising equity
prices, this can benefit the net asset value performance of the Ordinary
Shares, but the converse also holds true.
• AGVIT’s investment objective is to provide Ordinary
Shareholders with high total returns, incorporating an attractive level of
income, and to provide ZDP Shareholders with a pre-determined Final Capital
Entitlement of 160.58 pence per ZDP share on the Planned Winding Up Date of 30
June 2031. Based on the issue price of 100 pence per ZDP Share, this gives a
7.0% gross redemption yield.
• Ordinary Shareholders are entitled to all net income
generated by the portfolio of investments. On a winding-up, Ordinary
Shareholders are entitled to receive undistributed revenue reserves in
priority to the capital entitlements of the ZDP Shareholders. Ordinary
Shareholders are also entitled to the net assets of the Company, if any, after
all liabilities have been settled and the entitlements of the ZDP Shares have
been met.
• The Company invests in a diversified portfolio of 50-100
smaller UK quoted companies. There were 69 holdings at 31 December 2024.
• Aberforth Partners LLP manage the investment portfolio
within parameters set by the Board. Their business was founded in 1990 and
specialises in investing in small UK quoted companies. The team of six fund
managers have considerable experience both of the asset class and of managing
investment trusts. They have consistently applied a value investment
philosophy to their selection of portfolio companies.
Review of Performance
Performance in AGVIT’s first six months was disappointing. However, we are
looking at a short period and one that was affected by non recurring launch
costs. For AGVIT to succeed over its seven year life, the Company needs to
produce capital returns at the total assets level in excess of the hurdle rate
imposed by the ZDP Shares. When reporting performance, “since inception”
refers to periods since 28 June 2024 and reflects the impact of certain
one-off costs associated with the launch. “Since launch” refers to
periods since 1 July 2024 and excludes these one-off costs.
Performance backdrop
AGVIT’s Total Assets Total Return in the period since launch was -0.6%,
which was unaffected by one-off launch costs, and since inception was -2.3%.
Total Assets Total Return is the return from the portfolio of investments and
so is not influenced by AGVIT’s capital structure.
For context, in the period since launch, the performance of larger companies,
represented by the FTSE All-Share, was 1.9% and small companies, in the form
of the Deutsche Numis Smaller Companies Index (excluding Investment
Companies), returned 3.8%. This latter index, abbreviated throughout this
report as “DNSCI (XIC)”, is the Company’s opportunity base of small UK
quoted companies. Of course, AGVIT’s investment objective and capital
structure reduce the relevance of assessing its performance relative to an
equity index.
The negative total return is disappointing, but it is over a short period. I
would note that it is not inconsistent with the performance of the Managers’
other client portfolios over this six month period. As those ASLIT investors
who rolled over into AGVIT will recall, there was a particularly strong period
of performance in the first half of 2024, which was captured in the run-up to
the end of ASLIT’s life. Given the turbulence of world and domestic events
since then, some subsequent rotation is perhaps unsurprising.
The Managers’ Report examines the various factors that influenced the Total
Assets Total Return performance since launch.
Performance impact of gearing and one-off costs
For Ordinary Shareholders, the portfolio return, represented by the Total
Assets Total Return since launch, is geared by the final capital entitlement
due to the ZDP Shareholders. Since the portfolio return was below the ZDP
Shares’ entitlement rate, the Ordinary Share NAV Total Return since launch
was -2.2%.
The Ordinary Share NAV Total Return since inception was -4.2%. It is
calculated after one-off costs of c.£2.2 million. Of these, c.£1.2 million
are fees and expenses related to launch, which benefited from a contribution
from the Investment Managers of £450,000. The other main element arose from
a decline in the value of the investment portfolio between 21 June 2024, which
was the date agreed with ASLIT for the valuation of assets acquired from
ASLIT, and 28 June 2024. This decline reflected general market weakness in
that week.
NAVs and share prices at 31 December 2024
At 31 December 2024, the Ordinary Share NAV per Share was 95.85p. The
discount of the Ordinary Share price to the NAV widened to 13.4% over the
period. This resulted in a share price total return of -17.0%.
The ZDP Share NAV has increased at a rate consistent with the 7.0% annual
increase in its entitlement. The ZDP Share price was at a 3.8% premium to
its NAV per Share of 102.6p per share at 31 December 2024.
Despite the decline in the value of the portfolio, the projected final
cumulative cover of the ZDP Shares was unchanged at 2.0 times at the end of
the reporting period.
Performance conclusion
As the Managers set out in their report, the investment opportunity over
AGVIT’s seven year planned life remains compelling. One of the attractions
of the Company’s structure is its limited life, which in due course
addresses share price discounts. Looking beyond the vagaries of near term
market sentiment, a better gauge of progress for AGVIT is arguably the income
performance of its investments.
Earnings and Dividends
AGVIT’s income performance has been good in its first six months. The
positive dividend experience of the portfolio is reflected in the 3.24p of
revenue returns per Ordinary Share in the period to 31 December 2024. This
was above the Managers’ estimates at launch, which underlines the resilience
of AGVIT’s investee companies. While revenue per share has so far been
better than expected, it is prudent to point out that the December year end
reporting season is still ahead of us and so the dividend experience in the
next two quarters will be important for the full year outcome.
Shareholders will recall the Prospectus stated that, in the absence of
unforeseen circumstances, the Company will target dividends in the range of
4.00 and 5.00p per Ordinary Share, in respect of the period from launch to 30
June 2025. The Prospectus Assumptions stated that the first interim dividend
will be approximately 30% of the total each year. Given the positive income
experience so far, the Board is pleased to be able to focus on the top end of
the Prospectus range and to announce a first interim dividend of 1.50p per
Ordinary Share in respect of the financial period to 30 June 2025.
The first interim dividend will be paid on 10 March 2025 to Ordinary
Shareholders on the register as at close of business on 7 February 2025. The
ex dividend date is 6 February 2025. The Company operates a Dividend
Reinvestment Plan. Details of the plan are available from Aberforth Partners
LLP or on their website, www.aberforth.co.uk.
Outlook
As your Company launched, the mood in the UK was starting to improve and low
stockmarket valuations were attracting M&A interest from larger companies and
private equity. The decisive election result in the UK promised to add a
shot of political stability to the cocktail of investment opportunities for
your Company. However, in the short period since launch, other complications
have emerged, notably the UK’s business-unfriendly Budget and political
uncertainties overseas. Consequently, investors have been given further
pause for thought and are not yet convinced that the attractive stockmarket
valuations of small UK quoted companies outweigh the risks.
Taking a longer term view, the Board continues to believe that small UK quoted
companies can generate capital and dividend growth to provide good total
returns for both Ordinary and ZDP Shareholders. As the Managers’ Report
describes, the portfolio is invested in good businesses with strong balance
sheets, which have coped well with political and macro-economic tests over the
years. It is encouraging that their resilience is already evident in
AGVIT’s income performance, which has so far been better than expected at
launch. In my experience, it is a reasonable assumption that rising
dividends will support the portfolio’s capital growth in due course.
Beyond the progress likely to be achieved by individual investee companies
over the Company’s planned seven year life, AGVIT can also benefit from a
broader reappraisal of small UK quoted companies. Despite some improvement,
valuations remain depressed and are attracting attention. On-going M&A
activity confounds the gloominess of the stockmarket and highlights the
qualities of the sorts of companies selected by the Managers. It seems to me
likely that, until a broad revaluation of the asset class comes to pass,
takeover activity will continue. This may not deliver smooth returns, but it
is an obvious means through which the many value opportunities in AGVIT’s
portfolio can be realised.
Your Board therefore believes that AGVIT’s portfolio and capital structure
are fit for purpose – they can deliver on the investment objectives of both
classes of shareholder over the Company’s seven year planned life.
My fellow directors and I would welcome the views of all Shareholders about
any matter pertinent to the Company, to which end my email address is noted
below.
Angus Gordon Lennox
Chairman
28 January 2025
Angus.GordonLennox@aberforth.co.uk
MANAGERS’ REPORT
Introduction
In the six months from launch to 31 December 2024, AGVIT’s total assets
total return was -0.6%. This represents the performance of the Company’s
portfolio of small UK quoted companies. AGVIT’s investment universe is the
Deutsche Numis Smaller Companies Index (excluding Investment Companies) or
DNSCI (XIC). The total return from this index in the period was +3.8%. For
further context, the total return from larger UK companies, in the form of the
FTSE All-Share index was +1.9%. The Performance Analysis and Portfolio
Characteristics section of this report sets out the influences on AGVIT’s
return in the period.
Investment background
The top-down backdrop for stockmarkets was inauspicious around AGVIT’s
launch. The war in Ukraine continued, as did the conflict between Israel and
Hamas. The risk of escalation buffeted oil prices and equity valuations.
Political uncertainty was an additional challenge. The results of the
elections in the UK and the US were broadly as expected, though the markets
are now digesting the implications of policy change under the new regimes.
Politics are more unclear elsewhere. An election looms in Japan, while South
Korea has seen its president attempt to impose martial law. In Europe,
June’s election for the European parliament was the catalyst for a snap
election in France, where a stable government has yet to be established.
Meanwhile, Germany is also facing elections early in 2025 following the
collapse of the ruling coalition.
On the economic front, the UK pulled out of the recession in the second half
of 2023. The recovery has been tentative so far, but prospects for wage
growth above the rate of inflation, lower mortgage rates and high household
savings offer encouragement for the coming year. In Europe, Germany
continues to struggle to escape recessionary conditions. Its export reliant
industrial economy is contending with Chinese and Japanese competition, while
demand for its products from China and elsewhere is depressed. The bright
spot has remained the US, though even here recent macro-economic data have
been patchy and hint at slowing growth.
Despite these challenges, equities have not performed badly, even stripping
out the boost to the US market from the “Magnificent Seven” and artificial
intelligence. The main reason was optimism about the interest rate cycle –
for equity markets, the promise of a lower cost of money can overcome a host
of other issues. The prospect of lower rates was fuelled by that lacklustre
growth environment described above and by improving inflation data, as the
pace of inflation continued to subside from the very high rates of 2022.
Interest rate cuts were duly forthcoming, with the European Central Bank
cutting in June, the Bank of England in July and the Federal Reserve in
September. Stockmarkets’ great hope is that the Federal Reserve can
achieve the historically elusive “soft landing” – taming inflation
without tipping the US economy into recession.
However, towards the end of 2024, politics intruded to unsettle the narrative
of disinflation and lower interest rates. The Republican clean sweep in
America’s Presidential and Congressional elections increased the likelihood
of potentially inflationary policies, such as trade tariffs, lower immigration
and tax cuts. It remains to be seen whether tariffs are implemented in full
force or are more of a negotiation tactic. And it is still unclear whether
the new Department of Government Efficiency can mitigate the impact of tax
cuts on budget deficits. Therefore, the assumption of a swift return to the
lower inflation and interest rate environment of the pre-pandemic era has been
undermined. It is notable that US bond yields have risen and that the market
now expects a slower pace of interest rate cuts than it did before the
elections.
In the UK, there have been similar developments. Labour’s first Budget in
nearly 15 years has clouded the outlook for monetary policy and the economy.
It seems likely that increases to the National Living Wage and employers’
national insurance contributions will be inflationary, as businesses seek to
pass on their cost increases. At the same time, higher government spending
and borrowing threatens to crowd out the private sector, which must also
contemplate further tax increases if the government’s growth ambitions do
not transpire as intended. Again, fiscal action jeopardises the outlook for
monetary policy: expectations today are now for less significant interest rate
cuts than was the case before the Budget. As in the US, the point here is
not to judge the merits of government policies; rather, it is to highlight
the unintended consequences of governments’ plans for what buoyed
stockmarket valuations through 2024, namely expectations of lower interest
rates.
Turning to the UK stockmarket, its relevance has been widely questioned in
recent years against a backdrop of outflows from equity funds and a dearth of
IPO activity. The angst has been shared by regulators and successive
governments. Several changes have followed, notably to the listing rules,
and more are to come with the new prospectus regime in 2025. Other
initiatives may follow, but the new Chancellor’s commentary thus far has
been rather vague and, as the short-lived flirtation with the UK ISA shows,
policy change can be abrupt.
Indeed, reliance on government diktat, with all its unintended consequences,
is seldom comfortable. Therefore, other signs of life in the UK stockmarket
are more encouraging. Valuations were at a particularly low ebb little over
a year ago, when the UK’s economic and political situation appeared
particularly uncertain in comparison with those of other countries. A year
on, the UK looks less of an outlier. This has helped to bring tension back
into the valuation of UK equities and to elicit a re-rating of small and large
companies in the first half of 2024. At the same time, the identity of the
marginal buyers of small UK quoted companies is now clear: larger companies
and overseas companies through M&A, overseas asset managers, the companies
themselves through buy-backs, and of course AGVIT.
Performance analysis and portfolio characteristics
Over the six months to 31 December 2024, AGVIT total assets total return was
-0.6%. The DNSCI (XIC)’s was +3.8%. The paragraphs below provide context
for these numbers and also set out the important characteristics of AGVIT’s
portfolio.
Portfolio Characteristics as at 31 December 2024 AGVIT DNSCI (XIC)
Number of companies 69 350
Weighted average market capitalisation £659m £1,019m
Weighting in “smaller small” companies* 44% 21%
Price earnings (PE) ratio (historical) 9.6x 13.0x
Dividend yield (historical) 5.6% 3.4%
Dividend cover (historical) 1.9x 2.2x
*“Smaller small” companies are members of the DNSCI (XIC) that are not
also members of the FTSE 250
Geography
AGVIT’s investment return in the six months to 31 December 2024 was hindered
by the weak share prices of several of its industrial holdings, companies
which tend to generate their revenues and profits outside the UK. This is
unusual in the context of the past eight years. In 2016, the EU referendum
spurred a decline in sterling that boosted the translated profits earned
outside the UK. Overseas earners also fared relatively well during the
pandemic, since businesses dependent on the UK economy were particularly badly
affected by lockdown.
The change in sentiment in the second half of 2024 had several causes.
First, trading conditions for overseas businesses are subdued as much of the
world is experiencing lacklustre economic growth. Second, US trade tariffs
loom following the election of Donald Trump. Finally, sterling’s recent
strength against the euro is negative for the translation of profits earned in
Europe, reversing some of the advantage gained by overseas earners in the wake
of the EU referendum. Towards the period end, the effects of the Budget were
felt on the share prices of domestic businesses and the Managers are seeing
investment opportunities in both groups of companies.
Despite their recent challenges, AGVIT’s overseas earners remain strong
businesses. A good example is the DNSCI (XIC)’s engineering sector. Most
engineers, including those owned by AGVIT, are truly international
businesses. They have grown geographically over the years in response to
shifting global demand, locating plants close to those of their customers.
Their experienced management and strong balance sheets mean that, if the US
does impose stringent tariffs on the likes of Mexico, it is probable that they
will adapt again, moving capacity from Mexico to their US facilities. Some
transitional costs could be incurred to achieve this, but the underlying
viability and relevance of the businesses would likely be unaffected.
Style
The Managers invest in accordance with their value investment philosophy. For
existing and potential investments, they calculate target valuations. These
are influenced by fundamental analysis, judgement informed by experience, and
reference to other relevant valuations in equity markets or corporate
activity. Growth of profits is an important component of a target valuation,
but the Managers find that stockmarket valuations are often too generous in
their assumptions of the sustainability and pace of growth.
The value investment philosophy means that AGVIT’s returns are influenced by
the stockmarket’s preference in any period for more expensively priced
growth stocks or more modestly rated value stocks. In respect of the six
months to 31 December 2024, analysis by London Business School of the DNSCI
(XIC) suggests that the value style performed in line with the growth style,
with the latter buoyed in sympathy with America’s large technology
companies. Style was not, therefore, a significant influence on AGVIT’s
performance in the period under review. Over recent years, however, style has
been beneficial. Value stocks have out-performed since the recovery from the
pandemic started towards the end of 2020. A further boost came as inflation
soared in 2022 and drove bond yields higher. While the rate of inflation has
declined, its future path is uncertain. This should help maintain interest in
the value style.
Size
The DNSCI (XIC) includes all main listed stocks in the UK with market
capitalisations below c.£1.9bn. It therefore includes many mid cap
companies. For much of the period since the global financial crisis in 2008,
the Managers have found more attractive valuations down the market
capitalisation scale. AGVIT has therefore a relatively high exposure to what
might be termed the “smaller small” companies. Since late 2020, as the
pandemic recovery commenced, the share prices of “smaller small” companies
have performed better than those of the mid caps within the DNSCI (XIC).
This was also the case in the six months to 31 December 2024. AGVIT’s
returns therefore benefited from its size positioning. Notwithstanding this
improved performance from the “smaller smalls”, they continue to exhibit
more attractive valuation characteristics, as the section on Valuations below
demonstrates.
Balance sheets
The following table sets out the balance sheet profile of AGVIT’s portfolio
and of the Managers’ Tracked Universe. This subset of the DNSCI (XIC)
represents 98% by value of the index as a whole and is made up of the 234
companies that the Managers follow closely.
Weight in companies with: Net cash Net debt/EBITDA < 2x Net debt/EBITDA > 2x Other*
Portfolio 2024 31% 51% 15% 3%
Tracked Universe 2024 30% 41% 23% 7%
*includes loss-makers and lenders.
Balance sheets are robust both within the portfolio and among small companies
in general. Around one third of both the portfolio and index by value is
represented by companies with net cash on their balance sheets. The more
highly leveraged companies tend to be those with asset backing, such as
property companies. It has been argued that small companies are less
securely funded than large companies and that they therefore merit lower
valuations. Some also claim that value stocks are less securely funded than
growth stocks. Neither of these contentions hold true today, which
underscores the attractiveness of AGVIT’s current investment opportunity.
The strength of balance sheets naturally makes the question of capital
deployment more urgent. The Managers frequently engage on this issue with
the boards of AGVIT’s investee companies. The highest priority should be
organic investment to maintain the viability of a business and allow it to
grow. Thereafter, a coherent and appropriate dividend policy is essential,
optimally one that allows ordinary dividends to grow in real terms through
economic cycles. After that, acquisitions may be considered, but these
should be assessed against the benchmark of lower risk special dividends or
share buy-backs. It is notable that numerous small companies bought back
shares in calendar 2024, which points to the value that boards of directors
see in their companies. Among AGVIT’s 69 investee companies, buy-backs
were undertaken by 16 companies, nine of which were among the top 20 holdings.
Income
The table below categorises AGVIT’s 69 holdings at 31 December 2024
according to each company’s most recent dividend action.
Nil Payer Cutter Unchanged Payer Increased Payer New / Returner
4 11 16 35 3
The message from the analysis is good, with the most populated category being
those companies that most recently increased their dividends. There was
further benefit from the three companies recommencing dividends or making
payments for the first time. Less positively, eleven companies cut their
dividends. Six of these were businesses operating in the domestic economy,
usually close to the housing market. Their dividend decisions in 2024 were
influenced by the impact of the recession towards the end of 2023. In the
round, this income analysis is consistent with AGVIT’s dividend receipts in
the six months to 31 December 2024, which was better than the Managers had
expected at launch.
The historical dividend yield of AGVIT’s holdings at 31 December 2024 was
5.6%. The average dividend cover was 1.9x. This reflects a weak earnings
performance from small companies in 2024, consistent with the recession
impact, along with the resilience of dividends previously described. As
profits continue their recovery from the downturn, it is likely that dividend
cover will rise from here.
Corporate activity
Stockmarket valuations in the UK remain attractive and so M&A activity
continues apace. If UK institutions and retail investors are willing sellers
of domestic equities, larger overseas companies and private equity are willing
buyers. For context, in calendar 2024, the takeovers of 15 companies within
the DNSCI (XIC) were completed. As the year ended, there were offers
outstanding for three and approaches had been made for another two. Of these
20 deals, the buyers were evenly split between private equity and other
companies. Most of the acquirers were overseas based, with domestic buyers in
six of the situations. Turning to AGVIT’s experience in the six months to
31 December 2024, it had investments in three takeover targets. One of these
deals was completed by the calendar year end, whereas the other two were
outstanding. Over the years, the Managers’ value investment style has
meant that its clients have been disproportionate beneficiaries of M&A
activity.
Takeovers can be a good means of closing value gaps, but the low valuations
that still prevail in the UK stockmarket mean that the risk is high of some
takeovers being done on unattractive terms. The risk is exacerbated by
boards and other shareholders yielding too quickly to takeover interest, no
doubt succumbing to the gloomy sentiment towards the UK. The Managers’
approach in such situations is purposeful engagement, as described in the
section on Engagement below.
As the attractive valuations of small UK quoted companies draw takeover
interest, the corollary is a subdued IPO market. Just two IPOs of a
reasonable size and eligible for the DNSCI (XIC) were completed in calendar
2024. The Managers view this dearth of activity as a temporary phenomenon
and a function of prevailing valuations. The UK’s new listing rules and
the imminent changes to the prospectus regime are likely to encourage IPOs
once the valuation basis of the UK market recovers.
Engagement
Since Aberforth started investment management in 1990, an integral part of its
investment process has been engagement with the boards of the investee
companies. The approach to engagement is intended to be purposeful, discreet
and constructive. Its purpose is to improve investment outcomes for
Aberforth’s clients and investors. The Managers engage on any topic that
they perceive to be affecting the valuation of a company. The most common
issue addressed is capital allocation, though M&A terms were an important
topic in the first six months of AGVIT’s life.
Engagement includes regular updates with executive directors and also
encompasses meetings with non executives. There is a particular focus on the
chair, which is the most important role in the UK’s system of corporate
governance. The Managers are prepared to be taken inside for extended
periods, which indicates their commitment to responsible stewardship and which
can be helpful to investee companies. The Managers’ influence is enhanced
by their ability to take significant stakes of up to 25% of issued share
capital across their client base. At 31 December 2024, AGVIT had four
holdings in which Aberforth’s clients had a stake of more than 20% in an
investee companies and 20 holdings in which the stake exceeded 10%.
The currently high rate of M&A activity within the UK stockmarket makes
engagement particularly relevant. The terms of some of the takeovers have been
frustrating. Large control premiums have distracted from uninspiring exit
valuations and from boards too willing to present faits accomplis to their
shareholders. Aberforth has therefore reinforced, in both writing and in
meetings, the importance of boards consulting shareholders when they are
considering a takeover offer or a significant capital allocation decision.
For context, in 2024, there were numerous consultations by companies about
M&A. These often involved the Managers going inside. In some cases, the
Managers supported the boards in question to reject a takeover approach. In
others, they worked with the boards to improve the initial terms offered.
This sort of activity can be difficult and time-consuming, but it is important
particularly when UK valuations remain at such attractive levels. The
Managers are confident that their purposeful, discreet and constructive
engagement has enhanced its clients’ returns over time and will continue to
do so.
Valuations
AGVIT’s portfolio benefits from a triple valuation discount, which is set
out in the following table.
Price earnings (PE) ratio: 34 year average At 31 December 2023 At 31 December 2024
World equities* 15.9x 16.0x 17.7x
FTSE All-Share 15.3x 10.3x 14.6x
Smaller companies** 13.6x 10.3x 11.9x
Aberforth portfolio / AGVIT 12.0x*** 7.9x*** 9.6x
* Source: Bloomberg; Panmure Liberum
** DNSCI (XIC) to 2013 then Tracked Universe
*** Data for the portfolio of Aberforth’s longest standing client
The triple discount comprises the following: (1) UK equities have a lower PE
than do global equities, (2) small UK quoted companies have a lower PE than
does the UK market as a whole, and (3) AGVIT’s portfolio has a lower PE than
do smaller companies. The table also demonstrates the valuation opportunity
in another way. At present, UK equities, smaller companies and the portfolio
are each rated on a lower PE than the average over the 34 year history of
Aberforth’s longest standing client. Therefore, AGVIT benefits from
attractive valuations in comparison both with history and with broader equity
indices.
The table also reveals some change through calendar 2024: the PEs of all four
groups have risen. In the case of world equities, this was principally due
to the further share price gains of the “Magnificent Seven” and their
ilk. Less appreciated have been the partial re-ratings of the UK equity
market and smaller companies in 2024. A broad re-rating of this sort is
welcome but unsurprising given how unusually low PEs were towards the end of
2023. The uncertainty a year ago was when the improvement would come and
what would prompt it. In the event, there have been three influences: the
improved economic backdrop, a degree of political stability (at least in
relative terms), and the continued buying pressure in the form of M&A.
It is worth dwelling on the components of the re-rating. Focusing on smaller
companies, the historical PE rose from 10.3x at the end of 2023 to 11.9x at
the end of 2024. That is a 16% rise over a period in which the return from
the DNSCI (XIC) was 9.5%. From these two numbers it may be inferred that
small company profits fell in aggregate, by around 6%. This decline in
reported profitability is not news – the Managers expected this outturn
given the impact of the recession in the second half of 2023. While lower
profits are unwelcome, it is clear that they were not inconsistent with
positive equity returns as the stockmarket discounted a probable recovery in
profits.
There are parallels here with the early 1990s recession, which was caused by
inflation and the tighter monetary policy required to address it. The table
below gives the macro economic context for the early 1990s downturn, along
with how small UK quoted companies performed in the period.
1990 1991 1992 1993 Cumulative 1991-3
UK economic context
GDP YoY +0.6% -1.4% +0.2% +2.3% +1.1%
CPI YoY +7.0% +8.5% +4.2% +2.5% +15.9%
Year end base rates 13.9% 10.4% 6.9% 5.4% -
DNSCI (XIC)* experience
Year end PE ratio 8.2x 11.3x 13.9x 18.6x -
Implied earnings growth +1.8% -13.7% -13.1% +6.2% -20.3%
Total return -23.5% +18.3% +6.4% +41.6% +78.2%
*Taken or calculated from London Business School data
The table shows the positive total returns generated by smaller companies in
1991 and 1992 even as the recession hit and profits declined. These returns
drove the PE ratio up to 13.9x by the end of 1992. This was, though, only a
partial re-rating since the actual recovery in earnings, which started in
1993, prompted a very strong performance from the asset class.
Notwithstanding the similarities with today’s situation, it would be wrong
to anticipate that the market plays out in precisely this way. However, it
is clear that the higher PEs seen in 2024 are not in and of themselves a
barrier to further gains.
The following table turns to forward valuations. It uses the Managers’
favoured valuation metric, EV/EBITA (enterprise value to earnings before
interest, tax and amortisation). Ratios are set out for the portfolio, the
Tracked Universe and certain subdivisions of the Tracked Universe. The
profits underlying the ratios are based on the Managers’ forecasts for each
company that they track. The bullet points following the table summarise its
main messages.
EV/EBITA 2024 2025 2026
AGVIT’s portfolio 8.1x 7.3x 6.3x
Tracked Universe (234 stocks) 10.0x 9.0x 7.8x
- 38 growth stocks 15.9x 14.7x 12.7x
- 196 other stocks 9.3x 8.3x 7.2x
- 102 stocks > £600m market cap 10.5x 9.5x 8.3x
- 132 stocks < £600m market cap 8.8x 7.6x 6.6x
• The ratios are lower in 2025 than in 2024. This reflects
the Managers’ anticipation of profit growth in 2025, as lower interest rates
and real wage growth drive a recovery in the profitability of domestic facing
companies.
• The average EV/EBITA multiples of the portfolio are lower
than those of the Tracked Universe. This has been a consistent feature over
Aberforth’s history and is consistent with the Managers’ value investment
style.
• The portfolio’s 8.1x EV/EBITA ratio for 2024 is
considerably lower than the average multiple of 13.6x at which takeover offers
were made in calendar 2024.
• Each year, the Managers identify a cohort of growth stocks
within the DNSCI (XIC). These stocks are on much higher multiples than both
the portfolio and the rest of the Tracked Universe.
• Picking up on the size commentary above, the “smaller
small” companies within the DNSCI (XIC) remain more attractively valued than
do the “larger smalls”, despite the former grouping’s better share price
performance in the year.
Outlook and conclusion
The investment outlook is clouded by geopolitics. The war in Ukraine
continues, while the situation in the Middle East has recently become more
complicated with the overthrow of the Assad regime in Syria. Meanwhile,
there are unstable governments or imminent elections in France, Germany,
Japan, South Korea and Canada. Despite the conclusive Republican victory in
the US, uncertainty lingers. Donald Trump’s statements about tariffs and
reindustrialisation seem part of a world view that tends to isolationism,
though it is unclear how much of this is his well-practised tactics to achieve
a deal. To complicate matters, his fiscal actions will affect monetary
policy. This in turn will influence the US economy, whose resilience has
been welcome as other countries struggle, and the valuation basis of equities
and bonds around the world.
Political risk remains elevated too in the UK, despite – or perhaps because
of – Labour’s decisive election victory. The Budget was uninspiring and
impinges upon private sector growth, whatever the government’s rhetoric
about employers’ national insurance contributions. Businesses and
consumers can be forgiven for worrying about what might come next should
economic growth not pick up as the Chancellor predicts. Some of that
scepticism seems shared by bond investors, with gilt yields having risen
sharply since the Budget.
However, it is important to put today’s big picture concerns and risks in
perspective. Macro economic and geopolitical issues are a fact of life.
They have beset equity investors over Aberforth’s 34 years, and indeed
throughout the history of financial markets. Indeed, an element of the
superior return achieved by equities over the long term is the reward for
taking on those very risks. In their investment discussions, the Managers
aim to take into account top down influences but try not to be distracted by
them.
What is more certain is the resilience and valuations of the companies in
which AGVIT invests. It is worth returning to the way in which small UK
quoted companies have dealt so well with recent challenges such as Brexit, the
pandemic and supply chain disruption. Even in 2024, when companies reported
results affected by recession, many grew their dividends and many were able to
enhance shareholder returns with buy-backs. In this, they have been helped
by their strong balance sheets and experienced boards of directors. Given
their demonstrable flexibility, resilience and adaptability, it is reasonable
to expect them to cope well with further change.
It is clear, however, that the stockmarket continues to overlook the
resilience and progress of small UK quoted companies. Valuations recovered
over the past year but remain low in comparison with history and with other
equity markets. While the US market is priced for perfection, small UK
quoted companies are priced for irrelevance. But this tunnel vision on the
part of equity markets is part of the present opportunity for investors in
AGVIT’s asset class. What makes the valuation discrepancies particularly
thought-provoking is that there are rational investors – other companies and
private equity – who are prepared to pay substantial premiums over
stockmarket prices to own small UK quoted companies.
This takeover activity has helped to shine a light on AGVIT’s investment
opportunity by raising general awareness of the attractiveness of
valuations. Encouragingly, the Managers’ valuation framework suggests
upside from the re-rating of the asset class. While it is not guaranteed
that this will come in a prompt and smooth manner, investee companies are
likely to continue to make underlying progress and build value for their
shareholders. AGVIT is positioned to benefit from this with its diversified
portfolio of resilient businesses, which has been constructed through the
Managers’ consistent investment process and value investment philosophy.
Aberforth Partners LLP
Managers
28 January 2025
FINANCIAL HIGHLIGHTS
TOTAL RETURN PERFORMANCE
Period to 31 December 2024
Ordinary Share ZDP Share
Total Assets 1 NAV 2 Share Price 3 NAV 4 Share Price 5
------------ ------------ ------------ ------------ ------------
Since Inception 13 -2.3% -4.2% -17.0% 2.6% 6.5%
Since Launch 13 -0.6% -2.2% -17.0% 2.6% 6.5%
The total return per Ordinary Share2 for the period to 31 December 2024 was
-3.6p
ORDINARY SHARE
Net Asset Value per Share Share Price Discount / (Premium) Return per Share Dividend per Share Gearing 6
As at: --------- --------- ------------ --------- ------------ ------------
31 December 2024 95.9p 83.0p 13.4% -3.6p 1.50p 40.1%
Inception 13 100.0p 100.0p 0.0% n/a n/a 37.5%
ZERO DIVIDEND PREFERENCE SHARE (ZDP SHARE)
Net Asset Value per Share Share Price Discount / (Premium) Return per Share Projected Final Cumulative Cover 7 Redemption Yield 8
As at: --------- --------- --------- --------- ------------ ------------
31 December 2024 102.6p 106.5p (3.8)% 3.5p 1.97x 6.5%
Inception 13 100.0p 100.0p 0.0% n/a 2.03x 7.0%
HURDLE RATES9,a
Ordinary Shares Hurdle Rates to return ZDP Shares Hurdle Rates to return
100p Share Price Zero Value 160.58p Zero Value
------------ ------------ ------------ ------------ ------------
At 31 December 2024 3.7% 1.9% -10.7% -10.7% -55.3%
Inception 13 3.0% 3.0% -10.3% -10.3% -52.9%
REDEMPTION YIELDS & TERMINAL NAVs (ORDINARY SHARES) AS AT 31 DECEMBER 2024a
Capital Growth (per annum) Ordinary Share Redemption Yields 10 Dividend Growth (per annum)
-20.0% -10.0% +0.0% +10.0% +20.0% Terminal NAV 11
------------ ----------- ------------ ------------ ------------ ------------ ------------
-20.0% -36.0% -28.9% -21.9% -14.9% -8.0% 0.0p
-10.0% -29.3% -24.6% -19.1% -13.1% -6.7% 3.0p
+0.0% 0.2% 1.4% 3.0% 5.2% 8.0% 66.1p
+10.0% 15.2% 15.9% 16.9% 18.2% 19.9% 175.7p
+20.0% 27.7% 28.3% 29.0% 29.9% 31.1% 356.5p
a At 31 December 2024, this represents the rate/yield for the period to the
planned winding-up date on 30 June 2031
The valuation statistics in the tables above are projected, illustrative and
do not represent profit forecasts. There is no guarantee these returns will be
achieved.
1-13 Refer to Note 2, Alternative Performance Measures and Glossary
UK GAAP measures include Net Asset Value and Net Asset Value (ZDP) as defined
in the Glossary, Return per Share and Dividend per Share.
Principal Risks
The Board carefully considers the risks faced by the Company and seeks to
manage these risks through continual review, evaluation, mitigating controls
and action as necessary. A risk matrix for the Company is maintained. It
groups risks into the following categories: portfolio management; investor
relations; regulatory and legal; and financial and operational. The Company
outsources all the main operational activities to recognised, well-established
firms and the Board receives internal control reports from these firms, where
available, to review the effectiveness of their control frameworks.
The Board regularly reviews emerging risks. These are risks that are still
evolving, are not fully understood, but that could have a future impact on the
Company. The Board also regularly monitors how the Managers integrate risks
into the investment decision making.
Principal risks are those risks derived from the matrix that have the highest
risk ratings based on likelihood and impact. They are expected to be
relatively consistent from year to year given the nature of the Company and
its business. The principal risks faced by the Company, together with the
approach taken by the Board towards them, are summarised below. To indicate
the extent to which the principal risks change during the period and the level
of monitoring required, each principal risk has been categorised as either
dynamic risk, requiring detailed monitoring as it can change regularly, or
stable risk.
Investment performance and policy risk (a portfolio management risk)
The Company’s investment policy and strategy expose the portfolio to share
price movements. The performance of the investment portfolio will be
influenced by stock selection, liquidity and market risk (see Market risk
below). Investment in small companies is generally perceived to carry more
risk than investment in large companies. While this is reasonable when
comparing individual companies, it is much less so when comparing the risks
inherent in diversified portfolios of small and large companies. The Board's
aim is to achieve the investment objective by ensuring the investment
portfolio is managed in accordance with the policy and strategy. The Board has
outsourced portfolio management to experienced investment managers with a
clearly defined investment philosophy and investment process. The Board
receives regular and detailed reports on investment performance including
portfolio and risk profile analysis. Senior representatives of Aberforth
Partners attend each Board meeting. This remains a dynamic risk, with detailed
consideration during the period. The Managers’ Report contains information
on portfolio investment performance and risk.
Market risk (a portfolio management risk)
Investment performance is affected by several market risk factors, which cause
uncertainty about future price movements of investments. The Board delegates
consideration of market risk to the Managers to be carried out as part of the
investment process. The Managers regularly assess the exposure to market risk
when making investment decisions and the Board monitors the results via the
Managers’ reporting. The Board and Managers closely monitor economic
developments. This was a dynamic risk during the period, in which the Managers
reported on market risks including those referred to in the Managers’
Report.
Political and taxation changes outwith the Company’s control (a portfolio
management risk)
Investment performance is affected by political and taxation risk factors,
which cause uncertainty about future price movements of investments and may
cause shareholder dissatisfaction. The Board monitors in conjunction with the
Managers the political and tax landscape affecting the Company and takes
action if in the best interests of shareholders as a whole. Company advisors
provide regular updates. This is a dynamic risk.
Structural conflicts of interest (an investor relations risk)
The different rights and expectations of the holders of Ordinary Shares and
the holders of ZDP Shares may give rise to conflicts of interest between them.
While the Company’s investment objective and policy seek to strike a balance
between the interests of both classes of Shareholder, there can be no
guarantee that such a balance will be achieved and maintained during the life
of the Company. The Board acts in a manner that it considers fair, reasonable
and equitable to both classes of Shareholder. This is a stable risk.
Significant fall in investment income (a portfolio management risk)
A significant fall in investment income could lead to the inability to provide
an attractive level of income to Ordinary Shareholders. The Board receives
regular and detailed reports from the Managers on income performance together
with income forecasts. The Board and Managers monitor investment income and it
is considered a dynamic risk.
Loss of key investment personnel (an operational and portfolio management
risk)
The Board believes that a risk exists in the loss of key investment personnel
at the Managers. The Board recognises that the collegiate approach employed by
the Managers mitigates this risk. Board members are in regular contact with
the partners and staff of the Managers and monitor personnel changes. This is
a stable risk.
Regulatory risk (a regulatory and legal risk)
Breach of regulatory rules could lead to suspension of the Company’s share
price listings, financial penalties or a qualified audit report. Breach of
Section 1158 of the Corporation Tax Act 2010 could lead to the Company losing
investment trust status and, as a consequence, any capital gains would then be
subject to capital gains tax. The Board reviews regular reports from the
Secretaries to monitor compliance with regulations. This is a stable risk.
Cyber security risk (an operational risk)
The Company (or Managers) are subject to a cyber risk event negatively
affecting shareholders or the Company’s (or Managers) services. The Board
oversees the Managers’ (and other service providers’) cyber security
controls via external control reports and Board update papers. This is a
dynamic risk.
INTERIM MANAGEMENT REPORT
A review of the period to 31 December 2024 and the outlook for the Company can
be found in the Chairman’s Statement and the Managers’ Report.
Risks and Uncertainties
The Directors have a process for identifying, evaluating and managing the
principal and emerging risks faced by the Company. This process was in
operation during the period ended 31 December 2024 and continues in place up
to the date of this report. The Company's capital structure is such that the
underlying value of assets attributable to the Ordinary Shares is geared by
the rising capital entitlements of the ZDP Shares and accordingly the Ordinary
Shares should be regarded as carrying above average risk. The Company also has
a £2 million overdraft facility, which when utilised increases the level of
gearing. Mitigating factors in the Company's risk profile include its
relatively simple capital structure, its diversified portfolio of small UK
quoted companies, and outsourcing all of its main operational activities to
recognised, well established firms. Refer also to the ‘Principal Risks’
section.
Going Concern
The Directors are satisfied that the Company has sufficient resources to
continue in operation for the foreseeable future, a period of not less than 12
months from the date of this report. The Company’s assets comprise mainly
readily realisable equity securities, which, if necessary, can be sold to meet
future funding requirements, though this can typically be achieved through use
of the bank overdraft facility. Accordingly, the Directors continue to adopt
the going concern basis in preparing the financial statements.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors confirm that, to the best of their knowledge:
(i) the condensed set of financial statements has been prepared in accordance
with Financial Reporting Standard 104 “Interim Financial Reporting” and
gives a true and fair view of the state of affairs of the Company and of the
assets, liabilities, financial position and net return of AGVIT, as at 31
December 2024, as required by DTR 4.2.4R of the Disclosure Guidance and
Transparency Rules.
(ii) the Half Yearly Report includes a fair review of information required
by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events during the period to 31 December 2024 and their
impact on the financial statements together with a description of the
principal risks and uncertainties for the remaining six months of the year;
and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
disclosure of related party transactions and changes therein.
(iii) the Half Yearly Report, taken as whole, is fair, balanced and
understandable and provides information necessary for Shareholders to assess
the Company’s performance, objective and strategy.
On behalf of the Board
Angus Gordon Lennox
Chairman
28 January 2025
The Income Statement, Reconciliation of Movements in Shareholders’ Funds,
Balance Sheet and Cash Flow Statement are set out below:-
INCOME STATEMENT
For the period from incorporation on 29 March 2024 to 31 December 2024
(unaudited)
Revenue Capital Total
£000 £000 £000
Realised net gains on sales - 1,342 1,342
Movement in fair value - (6,043) (6,043)
-------- -------- --------
Net (losses) on investments - (4,701) (4,701)
Investment income 3,683 - 3,683
Other income 148 - 148
Investment management fee (Note 3) (165) (386) (551)
Portfolio transaction costs 1 - (776) (776)
Other expenses (183) - (183)
-------- -------- --------
Net return before finance costs and tax 3,483 (5,863) (2,380)
Finance costs:
Appropriation to ZDP Shares (Note 8) - (1,418) (1,418)
Interest expense and overdraft fee (1) (3) (4)
-------- -------- --------
Return on ordinary activities before tax 3,482 (7,284) (3,802)
Tax on ordinary activities (6) - (6)
-------- -------- --------
Return attributable to Equity Shareholders 3,476 (7,284) (3,808)
====== ======= =======
Returns per Ordinary Share (Note 5) 3.24p (6.79)p (3.55)p
On 28 January 2025, the Board declared a first interim dividend for the period
ending 30 June 2025 of 1.50p per Ordinary Share, which will be paid on 10
March 2025.
1 Portfolio transaction costs includes £602,000 in respect of stamp duty
incurred on the transfer of securities from ASLIT to AGVIT. See note 9 for
more information.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
For the period from incorporation on 29 March 2024 to 31 December 2024
(unaudited)
Share Share Special Capital Revenue
capital Premium reserve reserve reserve Total
£000 £000 £000 £000 £000 £000
Balance as at 29 March 2024 - - - - - -
Return on ordinary activities after tax - - - (7,284) 3,476 (3,808)
Equity dividends paid (Note 4) - - - - - -
Issue of Ordinary Shares (Note 9) 1,073 106,258 - - - 107,331
Ordinary Share issue costs (Note 9) - (592) - - - (592)
Share Premium cancellation (Note 9) - (105,616) 105,616 - - -
Cost of Share Premium cancellation - (50) - - - (50)
Issue of Redeemable Shares (Note 9) 50 - - - - 50
Redemption of Redeemable Shares (Note 9) (50) - - - - (50)
-------- -------- -------- -------- -------- --------
Balance as at 31 December 2024 1,073 - 105,616 (7,284) 3,476 102,881
====== ====== ====== ====== ====== ======
BALANCE SHEET
As at 31 December 2024
(unaudited)
Fixed assets 31 December 2024 £000
Investments at fair value through profit or loss (Note 6) 143,332
--------
Current assets
Debtors 550
Cash at bank 400
--------
950
--------
Creditors (amounts falling due within one year)
Other creditors (111)
--------
(111)
--------
Net current assets 839
--------
Total assets less current liabilities 144,171
Creditors (amounts falling due after more than one year) ZDP Shares (Note 8) (41,290)
--------
TOTAL NET ASSETS 102,881
======
Capital and reserves: equity interests
Share Capital Ordinary Shares (Note 9) 1,073
Reserves
Special reserve 105,616
Capital reserve (7,284)
Revenue reserve 3,476
--------
TOTAL EQUITY SHAREHOLDERS’ FUNDS 102,881
======
Net Asset Value per Ordinary Share (Note 7) 95.85p
Net Asset Value per ZDP Share (Note 7) 102.59p
Approved and authorised for issue by the Board of Directors on 28 January 2025
and signed on its behalf by:
Angus Gordon Lennox
Chairman
CASH FLOW STATEMENT
For the period from incorporation on 29 March 2024 to 31 December 2024
(unaudited)
Period to 31 December 2024 £000
Net cash inflow from operating activities 2,603
Investing activities
Purchases of investments (23,426)
Sales of investments 7,363
--------
Cash (outflow) from investing activities (16,063)
--------
Financing activities
Proceeds from issue of Ordinary Shares (Note 9) 2,651
Proceeds from issue of ZDP Shares (Note 9) 12,182
Share issue costs paid (Note 9) (969)
Interest and fees paid (4)
--------
Cash inflow from financing activities 13,860
--------
Change in cash during the period 400
--------
Cash at the start of the period -
Cash at the end of the period 400
--------
SUMMARY NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
(a) Basis of accounting
The financial statements have been presented under Financial Reporting
Standard 104 (FRS 104) and the AIC’s Statement of Recommended Practice
“Financial Statements of Investment Trust Companies and Venture Capital
Trusts” (SORP). The financial statements have been prepared on a going
concern basis under the historical cost convention, modified to include the
revaluation of the Company’s investments as described below. The functional
and presentation currency is pounds sterling, which is the currency of the
environment in which the Company operates. The Board confirms that no
significant accounting judgements or estimates have been applied to the
financial statements and therefore there is not a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year.
(b) Investments
The Company’s investments have been categorised as “financial assets at
fair value through profit or loss” as the Company’s business is to invest
in financial assets with a view to profiting from their total return in the
form of capital growth and income. Quoted investments are valued at their fair
value, which is represented by the bid price. Where trading in the securities
of an investee company is suspended, the investment is valued at the Board’s
estimate of its fair value. Purchases and sales of investments are accounted
for on trade date. Gains and losses arising from changes in fair value are
included in the capital return for the period, and transaction costs on
acquisition or disposal of a security are expensed to the capital reserve.
(c) Income
Dividends receivable on quoted equity shares are accounted for on the ex
dividend date as revenue, except where, in the opinion of the Board, the
dividend is capital in nature, in which case it is treated as a return of
capital. Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash, an amount equivalent to the cash
dividend is recognised as income. Any surplus or deficit in the value of the
shares received compared to the cash dividend forgone is recognised as
capital. Other income is accounted for on an accruals basis.
(d) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to
revenue except as follows:
• expenses that are incidental to the acquisition and
disposal of an investment are charged to capital; and
• expenses are charged to capital reserve where a connection
with the maintenance or enhancement of the value of the investments can be
demonstrated, in which respect the investment management fee and finance costs
incurred in connection with the overdraft facility have been allocated 70% to
capital reserve and 30% to revenue reserve.
(e) Finance costs
The ZDP Shares are designed to provide a pre-determined capital growth from
their original issue price of 100p on 1 July 2024 to a final capital
entitlement of 160.58p on 30 June 2031, on which date the Company is planned
to be wound up. The final capital entitlement of 160.58p per ZDP Share
represents a gross redemption yield of 7.0% per annum over the life of the ZDP
Shares, based on the issue price of 100p. No dividends are payable on the ZDP
Shares. The provision for the capital growth entitlement of the ZDP Shares is
included as a finance cost and charged to capital within the Income Statement.
Finance costs incurred in connection with the overdraft facility are accounted
for on an accruals basis.
(f) Capital reserve
The following are accounted for in this reserve:
• gains and losses on the realisation of investments;
• increases and decreases in the valuation of investments
held at the period end;
• gains on the return of capital by way of investee
companies paying dividends which are capital in nature; and
• expenses, together with the related taxation effect,
charged to this reserve in accordance with the above policies.
(g) Special reserve
This reserve may be treated as distributable profits for all purposes,
including the payment of dividends to Ordinary Shareholders and the buy-back
of shares provided, in both cases, that the projected final cumulative cover
of the ZDP Shares does not fall below 2.0 times, immediately following any
distribution to the Ordinary Shareholders from this reserve.
(h) Revenue reserve
Dividends can be funded from this reserve.
(i) Taxation
UK corporation tax payable is provided on taxable profits, where applicable,
at the current rate. Deferred tax assets, using substantially enacted tax
rates, are only recognised if it is considered more likely than not that there
will be suitable taxable profits from which the future reversal of deferred
tax assets may be deducted.
2. ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures (APMs) are measures that are not defined
under the requirements of FRS 102 and FRS 104. The Company believes that
APMs, referred to within “Financial Highlights” on page 1 of the half
yearly report, provide Shareholders with important information on the
Company. These APMs are also a component of management reporting to the
Board. A glossary including APMs can be found below and on page 28 of the
half yearly report.
3. INVESTMENT MANAGEMENT FEE
The Managers, Aberforth Partners LLP, receive an annual management fee,
payable quarterly in advance, equal to 0.75% of the Company’s Total Assets.
The investment management fee is allocated between revenue and capital as set
out in note 1 (d).
4. DIVIDENDS
The directors have declared a first interim dividend for the period ending 30
June 2025 of 1.50p which will be paid on 10 March 2025 to holders of Ordinary
Shares on the register on 7 February 2025. The ex dividend date is 6 February
2025. The first interim dividend has not been included as a liability in these
financial statements. Deducting the first interim dividend from the Company's
revenue reserves as at 31 December 2024 leaves revenue reserves equivalent to
1.74p per Ordinary Share.
5. RETURNS PER SHARE
Net return for the period £(3,808,000)
Weighted average Ordinary Shares in issue during the period 107,331,000
--------
Return per Ordinary Share (3.55)p
--------
Appropriation to ZDP Shares for the period £1,418,000
Weighted average ZDP Shares in issue during the period 40,249,000
--------
Return per ZDP Share 3.52p
--------
6. INVESTMENTS AT FAIR VALUE
In accordance with FRS 102 and FRS 104, fair value measurements have been
classified using the fair value hierarchy.
Level 1 - using unadjusted quoted prices for identical instruments in an
active market.
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable based on market data.
Level 3 - using inputs that are unobservable for which market data is
unavailable.
All investments are held at fair value through profit or loss. As at the
reporting dates all investments are traded on a recognised stock exchange and
have been classified as Level 1.
7. NET ASSET VALUE (“NAV”) PER SHARE
The Net Assets and the Net Asset Value per Share attributable to the Ordinary
Shares and ZDP Shares as at 31 December 2024 are as follows.
Ordinary Shares ZDP Shares Total Assets
Net assets attributable £102,881,000 £41,290,000 £144,171,000
Number of Shares 107,331,000 40,249,000 147,580,000
------------ ------------ ------------
Net Asset Value per Share 95.85p 102.59p 97.69p
------------ ------------ ------------
8. ZERO DIVIDEND PREFERENCE SHARES
Period ended: 31 December 2024 £000
Issue of ZDP Shares (refer to notes 1(e) and 9) 40,249
Capitalisation of issue costs of ZDP Shares (377)
------------
Opening Balance 39,872
Issue costs amortised during the period 22
Capital growth of ZDP Shares 1,396
------------
41,290
------------
Expenses of £377,000 associated with the issue of the ZDP Shares have been
capitalised. These will be amortised over the expected life of the ZDP Shares
and charged to capital as a finance cost within the Income Statement.
Amortisation for the period to 31 December 2024 was £22,000.
9. SHARE CAPITAL
Shares £000
As at 31 December 2024
Ordinary Shares of 1p each 107,331,000 1,073
ZDP Shares of 1p each 40,249,000 402
------------ ------------
Total issued and allotted 147,580,000 1,475
------------ ------------
Upon incorporation on 29 March 2024, the Company issued and allotted 1
Ordinary Share at £0.01. On 25 April 2024, 50,000 Redeemable Preference
Shares were issued and allotted to enable the Company to obtain a trading
certificate.
On 28 June 2024, the Company entered into a Transfer Agreement in connection
with the scheme of reconstruction and winding up of ASLIT. Under this Transfer
Agreement, a proportion of the assets of ASLIT were transferred to AGVIT as
consideration for the issue of Ordinary and ZDP Shares to shareholders of
ASLIT who elected to roll over their investment in ASLIT to AGVIT. The
calculation date of 21 June 2024 was used for valuing ASLIT's assets
transferred to AGVIT.
On 28 June 2024, 104,680,290 Ordinary Shares and 28,066,949 ZDP Shares were
allotted to the shareholders of ASLIT who elected to roll over their
investment in ASLIT to AGVIT at the issue price of £1 each. Assets amounting
to £132.7 million were transferred from ASLIT in consideration for this
allotment, including securities valued at £128.2 million.
In addition, 2,650,710 Ordinary Shares and 12,182,051 ZDP Shares were allotted
to satisfy the demand of the Placing and Offer for Subscription at the issue
price of £1 each. The proceeds of these issues were used to acquire
securities for the Company’s investment portfolio.
These allotments resulted in the Company having a total of 107,331,000
Ordinary Shares and 40,249,000 ZDP Shares, which were admitted to listing on
the Official List and to trading on the London Stock Exchange on 1 July 2024.
In addition, the 50,000 Redeemable Preference Shares were redeemed in full on
3 December 2024.
In November 2024, the High Court of Justice confirmed the cancellation of the
entire amount standing to the credit of the Share Premium account and the
creation of a Special Reserve, the balance of which may be treated as
distributable profits for all purposes as permitted by the Articles of the
Company. The Special Reserve will be available to be used for any buy-back of
Ordinary Shares and ZDP Shares as permitted by the Companies Act 2006 and in
accordance with the Company’s Articles of Association.
Costs of £592,000 associated with the issue of the Ordinary Shares, net of
the Aberforth Partners LLP cost contribution of £450,000, have been charged
to the Share Premium account. Costs of £377,000 associated with the issue of
the ZDP Shares will be amortised to capital as a finance cost in the Income
Statement over the planned life of the ZDP Shares. Stamp duty amounting to
£602,000 was also paid in relation to the transfer of securities from ASLIT
to AGVIT under the Transfer Agreement, as detailed above. This cost is
included in portfolio transaction costs as disclosed in the Income Statement.
10. Financial instruments and risk management
The Company’s financial instruments comprise its investment portfolio (see
pages 12 to 13 of half yearly report), cash balances, ZDP Shares, debtors and
creditors that arise directly from its operations such as sales and purchases
awaiting settlement, and accrued income. Note 1 sets out the significant
accounting policies, including criteria for recognition and the basis of
measurement applied for significant financial instruments, excluding cash at
bank, which is carried at fair value. Note 1 also includes the basis on which
income and expenses arising from financial assets and liabilities are
recognised and measured.
The main risks that the Company faces arising from its financial instruments
are as follows:
(i) Market price risk – the risk that
the market value of investment holdings will fluctuate as a result of changes
in market prices caused by factors other than interest rate or currency rate
movement.
(ii) Credit risk – the risk that a
counterparty to a financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. Investment transactions
are carried out with a large number of Financial Conduct Authority regulated
brokers with trades typically undertaken on a delivery versus payment basis.
(iii) Liquidity risk – the risk that the
Company will encounter difficulty raising funds to meet its cash commitments
as they fall due. Liquidity risk may result from either the inability to sell
financial instruments quickly at their fair values or from the inability to
generate cash inflows as required.
(iv) Interest rate risk – the risk that the
interest receivable/payable and the market value of investment holdings may
fluctuate because of changes in market interest rates. The Company’s
investment portfolio is not currently directly exposed to interest rate risk.
The Company’s policy is to hold cash in variable rate bank accounts.
The Company’s financial instruments are all denominated in sterling and
therefore the Company is not directly exposed to significant currency risk.
However, it is recognised that most investee companies, whilst listed in the
UK, will be exposed to global economic conditions and currency fluctuations.
11. Related Party Transactions
The Board consists of four non-executive Directors, all of whom are considered
to be independent by the Board. Each director has signed a letter of
appointment to formalise the terms of their engagement. All of the Directors
held shares in the Company at 31 December 2024 and their interests, in
aggregate, were 852,367 Ordinary Shares and 47,635 ZDP Shares. The fees of the
Directors for the period to 31 December 2024 were as follows.
31 December 2024 £
Angus Gordon Lennox 17,500
Graeme Bissett 16,000
Lesley Jackson 16,000
Jane Tufnell 16,000
------------
65,500
------------
There have been no related party transactions during the period to 31 December
2024 that have materially affected the financial position or the performance
of the Company. During the period no Director or entity controlled by a
Director was interested in any contract or other matter requiring disclosure
under section 412 of the Companies Act 2006.
12. Company Information
Aberforth Geared Value & Income Trust plc is incorporated in the United
Kingdom under the Companies Act 2006. The address of the registered office is
Level 4, Dashwood House, 69 Old Broad Street, London EC2M 1QS.
13. Further Information
The foregoing do not constitute statutory accounts of the Company (as defined
in section 434(4) of the Companies Act 2006). The financial statements cover
the first six months of activities following the Company's Launch. All
information shown for the period to 31 December 2024 is unaudited.
Certain statements in this report are forward looking. By their nature,
forward looking statements involve a number of risks, uncertainties or
assumptions that could cause actual results or events to differ materially
from those expressed or implied by those statements.
Forward looking statements regarding past trends or activities should not be
taken as representation that such trends or activities will continue in the
future. Accordingly, undue reliance should not be placed on forward looking
statements.
GLOSSARY
UK GAAP Measures
Net Asset Value, also described as Shareholders’ Funds, is the value of
total assets less all liabilities. The Net Asset Value or NAV per Ordinary
Share is calculated by dividing this amount by the total number of Ordinary
Shares in issue.
Net Asset Value (ZDP Share) is the value of the entitlement to the ZDP
Shareholders. The Net Asset Value or NAV per ZDP Share is calculated by
dividing this amount by the total number of ZDP Shares in issue.
Alternative Performance Measures
1. Total Assets Total Return - represents the return of the combined funds of
the Ordinary Shareholders and ZDP Shareholders assuming that dividends paid to
Ordinary Shareholders were reinvested at the NAV per Ordinary Share at the
close of business on the day the Ordinary Shares were quoted ex dividend.
2. Ordinary Share NAV Total Return – represents the theoretical return on
the NAV per Ordinary Share, assuming that dividends paid to Shareholders were
reinvested at the NAV per Ordinary Share at the close of business on the day
the shares were quoted ex dividend.
3. Ordinary Share Price Total Return – represents the theoretical return to
an Ordinary Shareholder, on a closing market price basis, assuming that all
dividends received were reinvested, without transaction costs, into the
Ordinary Shares of the Company at the close of business on the day the shares
were quoted ex dividend.
4. ZDP Share NAV Total Return – represents the rate of capital growth
required to achieve the final entitlement value of a ZDP Share.
5. ZDP Share Price Total Return – represents the return to a ZDP
Shareholder, on a closing market price basis.
Other Glossary Terms
6. Gearing – is calculated by dividing the asset value attributable to the
ZDP Shares by the asset value attributable to the Ordinary Shares.
7. Projected Final Cumulative Cover – is the ratio of the total assets of
the Company as at the calculation date, to the sum of the assets required to
pay the final capital entitlement of 160.58p per ZDP Share on the planned
winding-up date, future estimated investment management fees charged to
capital, and estimated winding-up costs.
8. Redemption Yield (ZDP Share) – is the annualised rate at which the
planned future payment of capital is discounted to produce an amount equal to
the price at the date of calculation.
9. Hurdle Rate - is the rate of capital growth per annum in the Company’s
investment portfolio to return a stated amount per Share at the planned
winding-up date.
10. Redemption Yield (Ordinary Share) - is the annualised rate at which
projected future income and capital cash flows (based on assumed future
capital/dividend growth rates) is discounted to produce an amount equal to the
share price at the date of calculation.
11. Terminal NAV (Ordinary Share) - is the projected NAV per Ordinary Share at
the planned winding up date at a stated rate of capital growth in the
Company’s investment portfolio after taking into account the final capital
entitlement of the ZDP Shares, future estimated costs charged to capital and
estimated winding-up costs.
12. Dividend reinvestment factor - is calculated on the assumption that
dividends paid by the Company were reinvested into Ordinary Shares of the
Company at the NAV per Ordinary Share or the share price, as appropriate, on
the day the Ordinary Shares were quoted ex dividend.
13. Key dates
Incorporation Date – 29 March 2024
Inception Date – 28 June 2024
Launch/Listing Date – 1 July 2024
Planned Winding-Up Date – 30 June 2031
CONTACT:
Euan Macdonald/Peter Shaw, Aberforth Partners LLP, 0131 220 0733
Aberforth Partners LLP, Secretaries
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